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CYCLICALITY, DETERMINANTS AND MACROECONOMIC EFFECTS OF FISCAL POLICY IN EUROPEAN COUNTRIES, WITH PARTICULAR REFERENCE TO TRANSITION COUNTRIES

Kabashi, Rilind (2015) CYCLICALITY, DETERMINANTS AND MACROECONOMIC EFFECTS OF FISCAL POLICY IN EUROPEAN COUNTRIES, WITH PARTICULAR REFERENCE TO TRANSITION COUNTRIES. Doctoral thesis, Staffordshire University.

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This thesis empirically investigates the stabilization properties and the effectiveness of fiscal policy, which is an issue that has been gaining attention in the academic literature and among policy-makers in the past two decades, particularly in the wake of the Great Recession. The aim of the thesis is to analyse the cyclical character and determinants of fiscal policy, as well as the short- to medium-term effects of fiscal policy on output and other macroeconomic variables in European countries, with particular reference to transition countries. Using an extensive survey of the relevant literature and particularly the results of the comprehensive empirical investigation, the thesis offers recommendations relevant for policy-makers in European countries. The thesis thus deals with issues that lie at the heart of the main academic and policy debates in the wake of the European debt crisis. Consequently, its findings and recommendations should be useful for current and prospective European Union and euro area member states.
In order to analyse the cyclical character and determinants of fiscal policy, system GMM is used as the most appropriate estimation method for the sample and the aim of the study. The main finding in this part is that discretionary fiscal policy is pro-cyclical in both groups of transition countries (from Central and Eastern Europe and from South-eastern Europe), thus aggravating economic fluctuations, while it is a-cyclical in old EU member states. These baseline results are robust to various extensions and robustness checks. The investigation of a wide range of additional factors indicates that various political and institutional factors also have important effects on fiscal policy in European countries, with numerous differences among the three country groups regarding their particular effect.
The extensive analysis of the stabilisation properties of fiscal policy is followed by an investigation of the ability of fiscal policy to influence economic movements, as well as of the transmission mechanism of fiscal policy. In this part, Panel Vector Auto Regression with recursive identification of government spending shocks is used to analyse the short- to medium-term effects of fiscal policy on output (fiscal multipliers) and other macroeconomic variables. The main results indicate that expansionary government spending shocks have a positive, but a relatively low effect on output, with the fiscal multiplier around one in the year of the shock and the following year, and lower thereinafter. Further, effects of fiscal policy are strongly dependent on structural country characteristics. In particular, fiscal multipliers are higher in new EU member states, in countries with low public debt and low trade openness.

Item Type: Thesis (Doctoral)
Faculty: Faculty of Business, Education and Law > Business
Depositing User: Jeffrey HENSON
Date Deposited: 10 Aug 2016 14:05
Last Modified: 10 Aug 2016 14:05
URI: http://eprints.staffs.ac.uk/id/eprint/2395

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